Returning to Work from Injury: Longitudinal Evidence on Employment and Earnings

New Zealand has a comprehensive accident insurance system, administered by the Accident Compensation Corporation (ACC), which both pays the direct medical and rehabilitative costs of all accidental injuries and compensates all workers 80 percent of their earnings for any time postinjury that they are unable to work. This paper uses data from Statistics New Zealand’s experimental Linked Employer-Employee Database (LEED) to examine the effect of suffering an injury on individual labour market outcomes. The experimental LEED database contains monthly information on ACC, benefit and earnings receipt for all New Zealanders over the three-year period from April 1999 to March 2002. Using receipt of ACC earnings compensation as a proxy for being injured, we examine the effect of injuries on employment and benefit rates, earnings and benefit income. Individuals who are injured and receive earnings compensation are unlikely to be a random sample of the working population. For example, workers in particular industries and occupations are likely to be more exposed to hazardous situations. Thus, we estimate the effect of injury by comparing the observed changes in labour market outcomes for our injured population with a matched ‘control’ group of non-injured individuals who have similar observed characteristics as the injured population. We allow the magnitude of these effects to differ for individuals with different lengths of time receiving ACC compensation as a proxy for the severity of injury. We find that injuries which result in more than three months of earnings compensation have negative effects on future labour market outcomes. For example, individuals who receive four months’ compensation have 2-4 percent lower employment rates, 2 percent higher benefit receipt rates, and 6-8 percent lower monthly income six months after compensation ends than comparable non-injured workers. For individuals who receive seven to nine months of compensation, these negative effects are larger, with employment rates 8-10 percent lower, benefit rates 7 percent higher, and monthly income 13-17 percent lower. Furthermore, these negative effects remain at a similar magnitude 12 months after compensation ends.